Commercial Property Yields
A review of market activity over the past year or so, makes it abundantly clear that demand for commercial property has kindled a significant tightening in yields. The transformation has occurred since 2013, when the market began to move after years in which investors were focused on bargain-basement prices. It was, of course, inevitable the property market would rebound from the depths to which it sank due to the global financial crisis.
However, in southeast Queensland’s major centres, we recently have witnessed prime offerings change hands on yields of less than 6%. So, what has been happening?
Factors Effecting Commercial Property Yields
The economy has been in recovery mode and business operators have taken advantage of low interest rates to secure ownership of premises that fit their needs. The demand is additional to pressure from investors for income-producing holdings and competition has impacted on yields in a market where supply has been diminishing.
But, is this the whole picture regarding commercial property yields? We think not.
We must take account of collapse in the resources sector and uncertainty in the share market.
To highlight the overall situation, we can consider one company – BHP. Its shares not so very long ago were up around $40. Yet, just weeks ago, they had sunk to a low of around $15 and, more recently, have been trading around $19. Iron ore, coal and copper miners, energy companies and others for the most part find themselves in similar circumstances, as do the banks and other finance sector players.
Against the backdrop of low share prices and general market volatility, investors have been keen to diversify, adding to demand pressure for property.
Smart Commercial Property Investment
Given the situation, it is worth considering where the smart money is being invested, and recent activity in the health sector is interesting. In February, boutique funds manager and syndication specialist Impact Investment Group made its first foray into the Gold Coast and the sector, settling the $45.8 million purchase of a hospital at Varsity Lakes.
Gold Coast Surgical Hospital was developed by Chinese interests, completed in mid-2013, and is anchored by listed company Pulse Health. Impact Investment Group, established in 2013, is owned by its chief executive, Chris Lock, and private investment company Small Giants, linked to Melbourne figure Berry Liberman and business associate Daniel Almago. Mr Lock was quoted in the media as saying the Gold Coast investment is unlikely to be Impact’s last in the healthcare property sector.
“We had been seeking opportunities to acquire healthcare property for some time and were attracted by the strong tenant, long-term lease and reliable income stream,” he said. “We see the sector as well insulated, almost counter-cyclical, and are keen to acquire additional holdings.” Mr Lock said Impact has a focus on property that delivers social and environmental benefits, and plans to reduce the hospital’s carbon footprint by investing between $600,000 and $800,000 on a rooftop solar-power installation.
Impact partners with sophisticated investors and each of its properties is held by a syndicate formed for the purpose. Its assets include a solar-energy infrastructure fund and a windfarm.
Last year it acquired Brisbane’s new nine-level 16,000sq m-plus K1 office tower from developer Lend Lease for more than $130 million.
In April, national healthcare, financial services, and independent and assisted-living specialist Australian Unity settled purchase of a 3920sq m site in Robina’s medical precinct at a price upwards of $3 million. In April last year, Australian Unity settled the $8.8755 million purchase of a 6662sq m site at nearby Bayberry Lane where a private hospital is under construction.
The hospital is to be built in three stages and the latest acquisition is expected to host some of its facilities. The first stage will comprise a 90-bed subacute hospital, scheduled for completion this year, to be leased to operator Health Care Australia. Follow-up stages will include a full surgical hospital.
Also in April, Australian Unity outlaid $81.47 million to acquire a four-level building with 11,075sqm of lettable space opposite Royal Brisbane Hospital that is leased to Queensland’s Department of Health. Agent CBRE’s Mike Walsh, who handled the sale with colleague Peter Court, was quoted by media as saying the property’s strategic location and the fact the Department of Health is the tenant were crucial to the sale.
“Australian Unity has formed a view the tenant will remain in the property beyond the initial (five-year) term given the asset’s position opposite the hospital and natural advantages the location provides,” he said. “The scale of this landmark transaction reinforces the strength of capital markets and highlights the premiums being paid for prime investment stock in a market lacking these types of opportunities.”
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